As you look to formulate appealing compensation packages for your workers, have you considered limited-purpose flexible spending accounts (LPFSAs)?
What Is a Limited Purpose Flexible Spending Arrangement (LPFSA)?
A limited purpose flexible spending account (LPFSA) allows eligible employees that are enrolled in High Deductible Health Plans (HDHP) to set aside pre-tax wages via payroll deductions into a tax-free account and use the money to pay for eligible out-of-pocket Dental and Vision expenses for themselves, their spouse and their qualified dependents.
How do LPFSAs work?
The Internal Revenue Service (IRS) sets and adjusts the contribution limits each year. This year, employees can set aside $2,850 in an LPFSA.
You would deduct LPFSA contributions in equal amounts from your employee’s paychecks. For example, if a bi-weekly paid employee elects to contribute the maximum amount of $2,850 for 2022, you would deduct $109.61 ($2,850 over 26 weeks) from each paycheck.
Your employee can access the full benefit at the start of the new year. For example, if they need surgery in January but they made only one payment into the LPFSA account, the full amount of $2,850 is available for their use.
LPFSA funds are typically accessible via a payment card, or employees can submit claim forms, itemized receipts, and the explanation of benefits for reimbursement.
Plans are considered use-it-or-lose-it accounts. If employees have money in their accounts at the end of the year, the IRS allows you to offer your employees two options.
- They can carry over up to $570 from 2022 to 2023
- The remaining balance must be used within the first 2 1/2 months of the following year.
Why Offer LPFSAs?
You may see the following benefits by offering your employees LPFSAs:
- Attract and retain talent
- Reduce your employment taxes
- Reduce accidents caused by poor eye-sight and reduce absenteeism due to time out for dental problems
- Increase productivity as employees are comfortable about their health and finances
- Employees can optimize their salaries by paying less in taxes
There are other details surrounding LPFSAs. For example, you can allow plan participants to use LPFSA funds to pay for qualified medical expenses once they meet their health insurance deductibles. The limitation exists because HSA holders cannot have medical coverage other than a high-deductible health plan (HDHP), dental insurance, and vision insurance.
Spelling out employee healthcare
Health care lingo can be an alphabet soup of terminology. We also write about PPOs, HMOs, HSAs, FSAs, 104ks, etc. Feel free to reach out to us to help you spell out your company’s custom health care packages.